Insurers ‘Fishing’ for Non-Disclosures: ASIC

An ASIC review of individual income disability insurance claims has established that insurers must do more work to guarantee that customers are safeguarded from unfair practices. The regulator’s analysis of nearly 4800 individual income disability insurance claims discovered that non-disclosure inspections were performed on around 5% of claims, equivalent to 252. At the same time, physical surveillance was conducted on approximately 1% of claims, equal to 57 claims.

Five insurers appeared to begin non-disclosure inspections only based on claims submitted within three years of policy renewal or inception, intensifying the risk of ‘fishing’, searching for ways to reduce the amount of claims they pay out. The ASIC review recognised concerns around mental health claims and investigations, discovering that 40% of non-disclosure inspections were related to mental health non-disclosure. Physical surveillance was utilised in ten mental health requests, and ASIC considers that this surveillance may have been unjustified in at least half of these cases. Use of surveillance may have been unauthorised in 17.5% of claims, equal to 10 out of 57, since the insurer had not demonstrated that other investigative procedures had been exhausted.

Karen Chester, ASIC deputy chair, said that physical surveillance and non-disclosure investigations are uninvited and intrusive measures that insurers must ensure they have a reasonable basis to undertake. Chester further explained that physical surveillance should only be used as a last resort.

The life insurers participating and engaging in the review are TAL, AIA Australia, MLC Life, Westpac Life Insurance Services, Resolution Life Australia and Zurich Australia. ASIC has reached out to the life insurers covered by the review, to indicate areas that require improvement and to convey expectations for their use of investigative tools while stipulating the obligation to handle claims honestly, efficiently and fairly.

In January, the handling, settling and resolving of insurance claims were regulated under the Corporations Act 2001 as a financial service. This mandate includes the responsibility to take claims fairly, honestly and efficiently.

Insurers will breach the responsibility to handle claims honestly, fairly and efficiently if they do not have reasonable grounds to test for misrepresentation or non-disclosure. Without a valid basis, the insurer may be taking part in ‘fishing’ and will be in breach of the obligations given to them.